Giving Charity Start-Ups a Better Chance at Success

Yesterday evening, I had the opportunity to teach a segment of a public policy class at Easten Michigan University on the sources of revenue for nonprofit organizations. During the discussion, one of the students raised a most interesting question. Remember that these students come at the question from the standpoint of "what makes good public policy" and not from the view of being fundraisers in any sense.

She asked "With money getting tighter from both feds and state, and with increasing need of existing charities to sharpen their cases for support and go to the giving public for increased contributions, why are 40,000 people a year opening new charities? Won't that make it nearly impossible for anyone to raise the money they need to sustain their operations?"

Her question was right on target. Since the early 1980s, starting with Ronald Reagan's presidency, the Republicans have been hell-bent for leather to find ways to cut taxes for the rich and have, therefore, embraced the idea that nonprofits should be allowed to do many tasks that government had been doing in the late 1960s and 1970s. This is made all the more palatable because nonprofits can typically deliver $6 worth of service for every $1 contributed. They do what government cannot do, and what business won't do. But then the GOP also wants to cut taxes and that means the charities have to go to the public for increased contributions.

But the public isn't psychologically ready to shoulder this burden. For the past 50 years they have been increasingly aware that it's government's role to support such things as human service, health, education, the arts, etc., and that their contributions only supplement what fees for service and government can regularly provide.

Consequently, the student's question: With charities proliferating wildly, what will the philanthropic marketplace look like in 10 or 20 years? "Even more highly competitive than it is today," would be my response. And we have the task of informing the donating public that nonprofits will be relying on them for perhaps as much as two to three times the contributions they're now giving in order for nonprofits to keep providing the services they now render to the society.

And, now, back to our thread on the subject of the proliferation of charities...

As we start to figure out how to deal with the proliferation of nonprofit organizations in our society, especially when we focus on the problems many of them get into because they are not planned and structured properly, I think we need to start with the premise that "it's a free country, and anyone should be able to do whatever he/she wants to do." Individual human liberty should not be abridged or constrained, unless the action anticipated is going to cause significant harm to others or to the society generally.

But for the good of society, we do generally regulate human endeavor. You can't, for example, keep gaming arcades out of town, but you can use zoning ordinances to regulate where they can or cannot be placed. On the other hand, you can pass an ordinance forbidding something like prostitution or gambling in your town because that action is deemed harmful to individuals and to the society at large. Let's see how we might apply that to charity start-ups in a helpful way without abridging the freedom of individuals to do what they wish to do.

Let's start with what it is we want to accomplish with regard to charity start-ups, then we can deal with how we might accomplish those objectives in a way that gives new charity start-ups a better chance at avoiding fundraising capacity problems down the road.

First, we want to ensure that every charity start-up begins its life with enough of the right strategic ingredients to keep it on an even keel financially and ensure that it will be able to perform its intended mission, thus bringing considerable good works to society over the long run.

If and as we continue to think of the nonprofit organization as a public trust, we need to ensure that each one has the best chance of success, and we need, as a society, to ensure that each charity actually accomplishes the mission for which it is created. If we have 20 drunks in town and two de-tox units, are they both doing a good job, and are they working to, but not being pushed beyond, their capacity for service?

Second, we want to discourage the creation of too many new charity start-ups in geographic locations where similar charities have already been set up. We want to avoid duplication of effort, while, at the same time, encouraging new charities to care for needs that have been left unmet. We want to avoid the situation where there are more homeless shelters, or more drug and alcohol treatment facilities than are needed by the target population in a given geographic area. If you have 20 drunks in town, you may not need more than one de-tox unit. So we need information about target populations served by nonprofits vs. the number of nonprofits established to care for various classes of target populations.

We also want to avoid the situation where there is so much demand on the giving public that they simply "rebel" and give up trying to meet the demand for contributions through rash and inadvisable local ordinances or other measures that stifle local charity start-ups in strange and new ways.

Third, we want to help ensure that prospective donors in the community have reasonable clarity about the mission and accomplishments of the charities they are asked to support. We want to know that of the 20 drunks in town, 17 are under treatment and ten of them are now well on their way to getting off and staying off alcohol. So we need readily available information about, and some standards of measurement for, mission accomplishment by the nonprofits currently serving in our community.

Fourth, we also want to help donors easily find the information they need to assure themselves that their gifts will be effectively and efficiently used for the purpose the donor intends. As a member of the general public, can one easily find out how many drunks there are, what proportion of drunks are taking advantage of the de-tox units that exist, and how many are in what stages of treatment? So we need information on target populations, standards of performance, and numbers of charities serving.

Can you who read this think of other objectives that should adhere to a system of regulation for new charity start-ups? If so, let me have your comments. Or if you have objection to talking about regulating charity start-ups, let's have you point of view.

More tomorrow...